Canadian Securities Administrators introduce harmonized approach to confidential pre-file reviews of prospectuses

On March 5, 2020, the Canadian Securities Administrators (CSA) published CSA Staff Notice 43-310 – Confidential Pre-File Review of Prospectuses (for non-investment fund issuers) (Staff Notice) establishing a harmonized approach to confidential pre-filing of prospectuses by non-investment fund issuers.

The Staff Notice expands the availability of pre-filing reviews for non-investment fund issuers, which has historically been an inconsistent process across Canada, and has been limited to more complex filings and those involving cross-border offerings.

Background

Under Part 8 of National Policy 11-202 – Process for Prospectus Reviews in Multiple Jurisdictions (NP 11-202), an issuer can elect to submit a prospectus to securities regulators for a confidential pre-filing review. The submission is made prior to the public filing of the preliminary prospectus and allows regulators to make a preliminary determination on key issues that may arise in the full review.

The Staff Notice supplements the process provided in NP 11-202, and provides additional guidance on which types of issuers can use the pre-filing process and which prospectuses can be subject to a pre-file review, and provides an overview of the general procedure for submitting a prospectus for a pre-file review.

Prior to the release of the Staff Notice, reporting issuers were subject to market risk or having their transactions terminated in the event that material issues were raised by securities regulators during the prospectus review process. In response to this concern, the Staff Notice is meant to foster capital formation, and provide issuers with greater flexibility and reduced execution risk by allowing them to engage with the securities regulators prior to publicly filing the prospectus.

Pre-filing considerations

Any non-investment fund issuer that intends to file a prospectus in a Canadian jurisdiction can use the pre-filing process.

Issuers can use the pre-filing process to pre-file a long form prospectus, a short form prospectus or a base shelf prospectus; however, the process cannot be used for structured notes distributed under the shelf prospectus system, non-offering prospectuses (unless the prospectus involves a cross-border financing) or prospectuses filed solely to qualify the issuance of securities on conversion of convertible securities (such as special warrants).

Pre-filing process

The Staff Notice outlines the process for a pre-filing review as follows:

1. Once the terms and conditions of the offering, and any related transactions, are determined (including an estimate of the price under the offering, where practical), the issuer should prepare a draft preliminary prospectus including such information.
2. Once a draft preliminary prospectus is complete, and the underwriters have substantially completed their review thereof, the draft prospectus can be submitted to the issuer’s principal regulator by email (or through the electronic filings portal of the Ontario Securities Commission (OSC) if Ontario is the principal regulator). Filing fees are currently only charged by the OSC; however, such fees will be credited against the filing fee for the publicly filed preliminary prospectus. The pre-filed prospectus should be accompanied by all of the documents required to be filed with the publicly filed preliminary prospectus. Note that an issuer may seek a confidential pre-file interpretation of only a certain aspect of the prospectus under NP 11-202. In this situation, staff will focus only on that aspect and will conduct a full prospectus review at the time of the public preliminary prospectus filing.  
3. Although timing will depend on the complexity of the pre-filed prospectus, regulators will use their best efforts to provide initial comments within 10 working days of receipt of the pre-filing. Normally, staff will conduct the same level of review of the pre-filing that they would for the publicly filed prospectus. If regulators determine that the pre-filing is materially non-compliant or incomplete, the principal regulator will stop the review and ask the filer to file a revised draft with the necessary information.
4. Upon receipt of initial comments, the issuer will work to clear the regulators’ comments on the draft prospectus and then submit a preliminary prospectus in the ordinary course. The submission of the preliminary prospectus should be accompanied by a blackline to the pre-filed prospectus.

In the Staff Notice, the CSA specifically noted that the pre-filed prospectus should be of the same quality as if it were a publicly filed preliminary prospectus, and contain all disclosure (including financial statements) prescribed under securities legislation. While the confidential pre-filing process is intended to address as many issues as possible prior to the public filing of a prospectus, staff reserve the right to raise additional comments once the prospectus has been publicly filed.

Dentons’ insight

The Staff Notice brings clarity and consistency to a previously opaque process surrounding the types of prospectuses that were appropriate for a pre-file review, and aligns with the wider focus on minimizing regulatory burdens.

This harmonized process will provide issuers with benefits, including with respect to:

• Confidentiality. As the pre-filed prospectus is submitted confidentially, it allows the issuer to deal with significant issues (including potentially sensitive information) prior to disclosing such information to the public. This should not only minimize the number of changes between the publicly filed prospectuses, but also allow the issuer to obtain guidance from regulators regarding the inclusion of certain items that may be considered sensitive information by the issuer; and
• Timing/certainty. As key issues are likely to be addressed at the time the pre-filing submission is made, the issuer will be able to address significant items before publicly filing a preliminary prospectus. This will be of particular benefit to issuers with complex issues or in industries subject to enhanced regulatory scrutiny (such as cannabis issuers or emerging market issuers) that may otherwise be subject to a longer process to clear all regulator comments. Issuers that are willing to invest the time and resources can confidentially resolve any regulatory concerns early in the process so that they are able to take advantage of certain capital market opportunities by gaining certainty in planning their prospectus offerings and completing such offerings on a condensed timeline.

Given the clarity brought to the pre-filing process via the Staff Notice and the significant benefits listed above, we expect pre-filing submissions to become more common for public offerings, especially those involving complex issues or industries subject to enhanced regulatory scrutiny. While not introduced in response to COVID-19, the confidential pre-filing process may be particularly helpful for issuers who are trying to navigate the current volatility in the capital markets.

For further information on the Staff Notice or the pre-filing process, please contact Ora Wexler, Eric Foster or Matthew Imrie.

This post was originally published on dentons.com.